The Dark Side of Job-Sponsored Student Loan Payments

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Picture graduating from college and landing a job that offers a good salary, health benefits, a retirement package — and your employer will help pay off your student loans.

More and more companies are jumping on this bandwagon, sponsoring benefit programs to help repay their employees’ student loans. With student loan debt ballooning to more than $1.5 trillion, the benefits of student loan repayment assistance are clear on both ends: Employers get the leverage they need to attract and retain millennial talent, and new hires find professional advancement and help on their student debt.

But there is one drawback: Under the current tax laws, employer student loan repayment is taxable. Like your paycheck, it’s counted as income and subject to income tax, meaning there could be tax consequences of an employer paying student loan debt.

Does this mean that accepting student loan help isn’t worth it? Not necessarily. Offsetting the tax burden may be possible with smart student loan decisions, and some proposed congressional legislation may eventually allow companies to contribute tax-free to help employees repay their student loans.

Let’s take a look at:

How job-sponsored student loan payments work

Currently, only 8% of companies offer employer student loan repayment assistance, but that’s up from just 4% a year ago, according to a survey by the Society for Human Resource Management. Companies that do offer this benefit generally allocate a certain amount of money from their budgets for employees with student loans.

Here are some examples of high-profile companies that offer student loan repayment benefits:

  • Fidelity Investments offers a $2,000 reimbursement package distributed over five years to employees who pass the six-month mark at the firm. Employees can receive up to $10,000 per borrower towards student loan repayments. So far, more than 9,000 employees have participated in the benefit.
  • Education technology company Chegg disburses up to $5,000 a year to entry-level and manager-level employees in the U.S. for student loan repayment, while more senior employees can receive up to $3,000 annually, funded through selling shares set aside for employees. As a separate benefit, employees can receive up to $1,000 per year in cash for debt repayment.
  • PricewaterhouseCoopers’ student loan paydown plan gives employees the chance to receive $1,200 a year toward student loan debt, up to $10,000. The company says the benefit helps shave up to three years off student loan repayment.
  • Global asset management company Natixis offers workers $1,000 immediately to use toward student loan debt, along with $83.33 per month paid directly to the student loan servicer. The benefit maxes out at $10,000 over a 10-year period, as long as the individual is still an employee during the duration.
  • Aetna offers student loan repayment assistance to employees with eligible loans that meet company guidelines. It will start providing a $2,000 annual match for employee student loan payments, maxing out the benefit at $10,000. To be eligible, employees must work at least 20 hours per week.

Beware the tax consequences of employer student loan repayment

Don’t confuse student loan repayment with tuition reimbursement. Tuition reimbursement is offered to employees who are taking classes while they are working. Under IRS rules, if your employer provides up to $5,250 annually in educational assistance for undergraduate or graduate-level courses, it is tax-deductible.

Student loan repayment is a different story. For now at least, employer student loan repayment is taxable. You’ll need to claim any amount on your tax return if your employer compensates you for your loans, no matter what the company policy or payout is. Considering that it qualifies as taxable, it would technically be closer to a salary bonus than a benefit.

All that may change if the Employer Participation in Repayment Act of 2019, currently working its way through Congress, is passed. The bill, sponsored in the Senate by Sen. Mark Warner (D-Va.) and Sen. John Thune (R-S.D.) and in the House by Rep. Scott Peters (D-CA), would amend existing tax code to allow employers to give tax-free student loan assistance up to $5,250 a year per employee.

How to make sure you benefit from student loan repayment

While proposed legislation winds its way through Capitol Hill, don’t let tax fears discourage you from participating in an employer-backed student loan assistance program. If you’re concerned that you’ll end up paying more in taxes to the IRS compared with what you’d likely save in student loan payments each month, consider the following:

Tax rates and potential savings depend on your finances

Minimizing the tax hit will depend on several factors, like the interest rate and terms of your student loans, your salary and the structure of your employer’s student loan assistance program. Crunch some numbers to see if you’ll come out ahead of the tax liabilities by receiving student loan benefits from your employer.

Some programs are already tax-free

Some public sector student loan repayment programs are tax-exempt, including the National Health Service Corps Loan Repayment Program, the Public Service Loan Forgiveness program and other similar loan repayment or forgiveness programs. If you choose a position in a qualifying program or field that already offers loan repayment or forgiveness, then you don’t have to factor employer contributions into your decision-making when accepting a position. With the money you’re saving on loan repayment, you may be able to direct more funds into your retirement savings account.

Refinancing can save you even more

Student loan refinancing can provide borrowers with a lower interest rate, better repayment terms and higher quality service. Combine it with repayment assistance from your employer, and you could come out on top financially. Just remember, once you refinance federal loans, you permanently lose access to the various federal aid programs, such as income-driven repayment plans and Public Service Loan Forgiveness.

Research potential employers’ student loan repayment policies

When considering potential employers, recent grads are increasingly looking for loan repayment assistance as a benefit. A Student Loan Hero survey found that nearly 39% of students said it was a very important or extremely important benefit. Future employers who reimburse student loans may be ahead of the curve on the tax-savings front.

Some companies have begun partnering with startups like Student Loan Genius, whose student loan 401(k) contribution feature links retirement savings to student loans. With the feature, companies can contribute pretax dollars to an employee’s retirement account each time the employee completes a student loan payment.

Consider your retirement

There’s a less-obvious benefit of working with an employer who will contribute to your student loans: The faster you pay off your student loans, the sooner you can really tackle your retirement contributions.

Next steps

For now, prioritize your student loan payments and weigh the pros and cons between the benefits you’re likely to receive against the taxes you’ll need to pay. A student loan repayment assistance program can help you get a leg up on your finances while also advancing your career. The number of companies offering this benefit is growing, and Student Loan Hero’s tools can help you search for participating employers.

By keeping abreast of emerging companies participating in student loan payment programs, as well as pending legislation, paying off your balance and reducing debt are just a few ways to get your job to work for your loans.

Alli Romano contributed to this report.

The information in this article is accurate as of the date of publishing.

Interested in refinancing student loans?

Here are the top 7 lenders of 2019!
LenderVariable APREligible Degrees 
Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Earnest.

Earnest Disclosures

To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.

Earnest fixed rate loan rates range from 3.45% APR (with Auto Pay) to 6.99% APR (with Auto Pay). Variable rate loan rates range from 1.81% APR (with Auto Pay) to 6.49% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of November 6, 2019, and are subject to change based on market conditions and borrower eligibility.

Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.

The information provided on this page is updated as of 11/06/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at hello@earnest.com, or call 888-601-2801 for more information on our student loan refinance product.

© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.


2 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student loan Refinance: Fixed rates from 3.46% APR to 5.98% APR (with AutoPay). Variable rates from 1.81% APR to 5.98% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 1.81% APR assumes current 1 month LIBOR rate of 1.81% minus 0.15% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. See eligibility details. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score. Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.

3 Important Disclosures for Laurel Road.

Laurel Road Disclosures

Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. Mortgage lending is not offered in Puerto Rico. All loans are provided by KeyBank National Association.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.

ANNUAL PERCENTAGE RATE (“APR”)
This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.

FEE INFORMATION

There are no origination fees or prepayment penalties associated with the loan. Lender may assess a late fee if any part of a payment is not received within 15 days of the payment due date. Any late fee assessed shall not exceed 5% of the late payment or $28, whichever is less. A borrower may be charged $20 for any payment (including a check or an electronic payment) that is returned unpaid due to non-sufficient funds (NSF) or a closed account.

LOAN AMOUNT

For bachelor’s degrees and higher, up to 100% of outstanding private and federal student loans (minimum $5,000) are eligible for refinancing. If you are refinancing greater than $300,000 in student loan debt, Lender may refinance the loans into 2 or more new loans.
For eligible Associates degrees in the healthcare field (see Eligibility & Eligible Loans section below), Lender will refinance up to $50,000 in loans for non-ParentPlus refinance loans. Note, parents who are refinancing loans taken out on behalf of a child who has obtained an associates degrees in an eligible healthcare field are not subject to the $50,000 loan maximum, refer to https://www.laurelroad.com/refinance-student-loans/refinance-parent-plus-loans/ for more information about refinancing ParentPlus loans.

ELIGIBILITY & ELIGIBLE LOANS

Borrower, and Co-signer if applicable, must be a U.S. Citizen or Permanent Resident with a valid I-551 card (which must show a minimum of 10 years between “Resident Since” date and “Card Expires” date or has no expiration date); state that they are of at least borrowing age in the state of residence at the time of application; and meet Lender underwriting criteria (including, for example, employment, debt-to-income, disposable income, and credit history requirements).

Graduates may refinance any unsubsidized or subsidized Federal or private student loan that was used exclusively for qualified higher education expenses (as defined in 26 USC Section 221) at an accredited U.S. undergraduate or graduate school. Any federal loans refinanced with Lender are private loans and do not have the same repayment options that federal loan program offers such as Income Based Repayment or Income Contingent Repayment.

All loans must be in grace or repayment status and cannot be in default. Borrower must have graduated or be enrolled in good standing in the final term preceding graduation from an accredited Title IV U.S. school and must be employed, or have an eligible offer of employment. Parents looking to refinance loans taken out on behalf of a child should refer to https://www.laurelroad.com/refinance-student-loans/refinance-parent-plus-loans/ for applicable terms and conditions.

For Associates Degrees: Only associates degrees earned in one of the following are eligible for refinancing: Cardiovascular Technologist (CVT); Dental Hygiene; Diagnostic Medical Sonography; EMT/Paramedics; Nuclear Technician; Nursing; Occupational Therapy Assistant; Pharmacy Technician; Physical Therapy Assistant; Radiation Therapy; Radiologic/MRI Technologist; Respiratory Therapy; or Surgical Technologist. To refinance an Associates degree, a borrower must also either be currently enrolled and in the final term of an associate degree program at a Title IV eligible school with an offer of employment in the same field in which they will receive an eligible associate degree OR have graduated from a school that is Title IV eligible with an eligible associate and have been employed, for a minimum of 12 months, in the same field of study of the associate degree earned.

INTEREST RATES

The interest rate you are offered will depend on your credit profile, income, and total debt payments as well as your choice of fixed or variable and choice of term. For applicants who are currently medical or dental residents, your rate offer may also vary depending on whether you have secured employment for after residency.

DISBURSEMENT OPTIONS

The repayment of any refinanced student loan will commence (1) immediately after disbursement by us, or (2) after any grace or in-school deferment period, existing prior to refinancing and/or consolidation with us, has expired.

POSTPONING OR REDUCING PAYMENTS

After loan disbursement, if a borrower documents a qualifying economic hardship, we may agree in our discretion to allow for full or partial forbearance of payments for one or more 3-month time periods (not to exceed 12 months in the aggregate during the term of your loan), provided that we receive acceptable documentation (including updating documentation) of the nature and expected duration of the borrower’s economic hardship.

We may agree under certain circumstances to allow a borrower to make $100/month payments for a period of time immediately after loan disbursement if the borrower is employed full-time as an intern, resident, or similar postgraduate trainee at the time of loan disbursement. These payments may not be enough to cover all of the interest that accrues on the loan. Unpaid accrued interest will be added to your loan and monthly payments of principal and interest will begin when the post-graduate training program ends.

We may agree under certain circumstances to allow postponement (deferral) of monthly payments of principal and interest for a period of time immediately following loan disbursement (not to exceed 6 months after the borrower’s graduation with an eligible degree), if the borrower is an eligible student in the borrower’s final term at the time of loan disbursement or graduated less than 6 months before loan disbursement, and has accepted an offer of (or has already begun) full-time employment.

If Lender agrees (in its sole discretion) to postpone or reduce any monthly payment(s) for a period of time, interest on the loan will continue to accrue for each day principal is owed. Although the borrower might not be required to make payments during such a period, the borrower may continue to make payments during such a period. Making payments, or paying some of the interest, will reduce the total amount that will be required to be paid over the life of the loan. Interest not paid during any period when Lender has agreed to postpone or reduce any monthly payment will be added to the principal balance through capitalization (compounding) at the end of such a period, one month before the borrower is required to resume making regular monthly payments.

KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.

This information is current as of November 8, 2019 and is subject to change.


4 Important Disclosures for Splash Financial.

Splash Financial Disclosures

Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers.


5 Important Disclosures for CommonBond.

CommonBond Disclosures

Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 1.9299999999999997% effective October 10, 2019.


6 Important Disclosures for LendKey.

LendKey Disclosures

Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it  endorse,  any educational institution.

Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of  5 years and is reserved for applicants with FICO scores of at least 810.

As of 11/07/2019 student loan refinancing rates range from 1.79% to 8.65% Variable APR with AutoPay and 3.49% to 7.75% Fixed APR with AutoPay.

 


7 Important Disclosures for College Ave.

College Ave Disclosures

College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.

1College Ave Refi Education loans are not currently available to residents of Maine.

2All rates shown include autopay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.

3$5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees.

4This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.

Information advertised valid as of 09/23/2019. Variable interest rates may increase after consummation.

1.81% – 6.49%1Undergrad
& Graduate

Visit Earnest

1.81% – 5.98%2Undergrad
& Graduate

Visit SoFi

1.99% – 6.65%3Undergrad
& Graduate

Visit Laurel Road

2.43% – 7.60%4Undergrad
& Graduate

Visit Splash

2.02% – 7.09%5Undergrad
& Graduate

Visit CommonBond

1.79% – 8.65%6Undergrad
& Graduate

Visit Lendkey

2.74% – 6.24%7Undergrad
& Graduate

Visit College Ave

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.

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